By Roger Berry, Managing Director at Concept Group Limited
We all lead busy lives, by the time we have negotiated the latest road closures, picked the kids up and walked the dog it’s time for bed. But to make long term plans and avoid long term difficulties, occasionally, we have to stop for a few minutes and make time. Leaving it until tomorrow means that lots of tomorrows pass and you end up in a right pickle.
If you have significant wealth or have a good final salary pension scheme – you are one of the lucky people for whom financing in your retirement is not a major headache and the options described under wont concern you. But for most people and certainly the young, it’s one of those things you know can’t be put off forever, but somehow never quite gets done.
Unlike current retiring people, the generations to come have to face a demographic timebomb that has very direct consequences on retirement and pensions.
The infographic above demonstrates (in round terms) that people are living much longer and when you look at the effects on the population in the future, those working and paying taxes as a proportion to those not working is changing awfully.
This isn’t something unique to Guernsey but unfortunately we are not well placed and our demographic time bomb is worse than many others, including the UK. The States recognise that people are going to need to do more themselves to avoid the worst of the timebomb that’s ticking. Primarily that will mean having your own funds in retirement.
I know that planning for your retirement is right up there with doing your annual tax return and visiting the dentist, but actually it’s not a difficult decision. in simple terms your options on retirement in Guernsey are pretty straight forward:
Rely on the States to look after you – Not so much of a plan but more of “it’ll be alright on the night” approach. If this fits your circumstances, don’t be embarrassed, according to our States own statistics, this is what the majority of people are doing as apparently only 45% of our population have pension arrangements in place. So for the other 55% grasp the nettle yourself and start a Retirement Annuity Trust (RAT) or get onboard with the upcoming Secondary Pensions project, already passed by the States, that requires Employers to have a pension plan for you. This reflects governments own concerns that its ability to support you in the face of the demographic timebomb is ever reducing.
Employer – they may have a scheme which they/you or both contribute to and they probably pay for it to be run – so that makes it cheap for you. If the contributions being put in are insufficient for your retirement needs, you may be able to make additional contributions. Even if they don’t have a scheme now the Secondary Pension project will soon require them to offer one.
Personal – you look after yourself. There are no insurance companies offering personal pension plans here anymore so the choice is simple – access a local RAT plan. They are pretty flexible and widely available. You can choose to contribute as much or as little as you like, but up to £50k per year attracts tax relief, so the tax breaks are significant. You can take a loan from your plan before you retire. You usually can access benefit from age 50 including the option to take a tax free lump sum of up to 30% of your fund. Thereafter you agree a pension amount to take regularly which is taxable but your personal allowances may reduce or totally avoid tax. Although you could consider starting a family type arrangement to look after your kids at the same time? If they have a plan set up for them it may well encourage them to contribute what they can afford over time and with pensions the earlier you start the better.